Movie Industry Doubles Down on 3-D

By Betsy Schiffman
04.14.08

DreamWorks Animation's Monsters vs. Aliens is the studio's first movie produced in 3-D technology. It's slated for a March 2009 release.Courtesy DreamWorks

Studio execs have an odd conundrum: Box-office receipts have steadily grown but the number of ticket sales have not. Thanks to the proliferation of home theaters, movies-on-demand and portable video players, moviegoers have fewer reasons to actually "go" to a movie. The studios' solution? Hike ticket prices by a couple bucks apiece and ramp up production of 3-D movies.

"It's pretty clear right now that you can charge a premium for 3-D," says Doug Creutz, an analyst with Cowen & Co., who covers the entertainment industry. "We're probably talking about the difference between $15 and $10 [tickets]. And attendance is much better for 3-D movies."

For studios, the financial allure of 3-D is twofold: The technology can't easily be replicated in home theaters (yet); and moviegoers are still willing to pay a premium for 3-D films. The big question is whether the technology is a game changer or just a short-lived gimmick to drive ticket sales, like Smell-O-Vision -- or, for that matter, the 3-D technology of the 1950s.

"This is a serious visualization technology that's just begun to be used for entertainment," says Elizabeth Brooks, chief marketing officer of 3-D system maker RealD, which has about 97 percent of the 3-D market. "It's been used by NASA and by scientists who need to render things perfectly. It's my job to sing the company's praises, but if the technology weren't good, [filmmakers] wouldn't be planning to make as many 3-D films as they're making."

Unlike 3-D films of the 1950s, the new wave of 3-D pictures don't blur and they don't cause headaches. In basic terms, a 3-D film is shot in two frames -- one for the right eye and once for the left eye. The projector buffers the left and right streams and projects them in alternation at 144 frames per second, using a "triple flash" technique that shows each frame three times in order to smooth out the picture. The RealD 3-D system also requires theaters to install a special silver screen to maintain the polarization of the image.

"To the people who continue to say it's a gimmick I would simply say, 'You're going to be the one left saying the Earth is flat,'" says Jim Dorey, a 3-D obsessive and writer of the Marketsaw blog, which is sponsored by several 3-D companies, including RealD. (Dorey, whose background is in IT, says he first became intensely interested in 3-D with the release of Jaws 3-D in 1983.)

But while studios move full-steam ahead with 3-D production, there's one minor hitch: There still aren't a whole lot of 3-D movie theaters -- only about 1,000 out of 38,900 screens in the United States are 3-D.

In order to install a 3-D system, theaters must have digital projectors. And at the moment, there are only 4,600 digital projectors in the United States, according to the National Association of Theater Owners. It costs tens of thousands of dollars to upgrade to digital projectors, and $20,000 to $50,000 more to install a 3-D system. It's a rich investment, and theater owners may not see much of a return on it: Studios, on average, make 55 percent of ticket sales, leaving just 45 percent for the theater owner.

One incentive for digital upgrades: A single film print can cost $1,000 to $1,500, and a widely released blockbuster could require the studio to make 3,000 to 4,000 prints, so distribution costs are not insignificant. These costs will largely be eliminated as more theaters upgrade to digital projectors, so the studios are offering to split the upgrade costs with theater owners.

Once studios get theaters to make the switch to digital, the shift to 3-D will be easier -- but it may not immediately improve the economics for studios. While the box-office gross and attendance is higher for 3-D movies, it costs more to make 3-D movies.

Creutz, whose focus is on Dreamworks, doesn't expect the company's roster of 3-D films will have a "huge profitability impact" on the company's earnings. He also expects that theaters won't be able to charge the premiums that they can now, once 3-D movies become mainstream.

"I would guess that in four or five years, 3-D will become somewhat standard," Creutz says.

And then of course, there's some concern that it will only be a matter of time before 3-D hits the home theater, which would leave theater owners back where they started. It seems like a stretch now since the costs of 3-D and digital projectors are exorbitant, but Dorey speculates that 3-D will penetrate home theaters in four or five years' time.

"The technology is already available," Dorey says. "It's not just about movies. It's about getting closer to total immersion for the internet, gaming, or any media experience. The bottom line is that if you're going to suspend disbelief and become part of an experience, it's going to have to be in 3-D."